Can I Avail Loan on Term Insurance Plans?

No, you cannot avail loans on term insurance plans because such term plans do not contain cash value and expire at the end of their policy period without earning any returns. Therefore, banks cannot consider term life insurance as collateral against loans.

However, in the case of Term Plans with Return of Premium, which has a surrender value, you can avail a loan. The loan value provided under this policy is subjected to the following conditions:

  • The Term Plan must have acquired Surrender Value (meaning that the due Instalment Premiums of the Policy have been received in full for the first three Policy years), after which you can avail loans under the policy up to 85% of the Surrender Value;


  • The Interest would be accrued on the Term Policy loan at a rate, which shall be determined based on the current market interest rate on 10-year Government Securities (or G-Sec) plus 2% (rounded to nearest 1%);


  • The minimum amount of Term Policy Loan that can be availed is Rs.10,000;


  • If the Policy is in Reduced Paid-Up status if you fail to pay the loan interest on the due dates, the policy could be foreclosed (under circumstances when the loan with outstanding interest exceeds the Surrender Value);